Large U.S. banks are preparing for more regulation, courtesy of the federal government. This time, though, the governmental actions have nothing to do with preventing another mortgage crisis. Instead, the Federal Reserve wants to know: If another global recession occurs, are large banks prepared to weather the economic crisis?
On Nov. 1, the Federal Reserve released the latest round of “stress tests,” designed to determine whether the banks can handle several hypothetical scenarios put forth by the government. While these tests have been in place since the 2010 passing of the Dodd–Frank Wall Street Reform and Consumer Protection Act, and have been conducted since 2012, the Federal Reserve added one new test for the largest banks this year over concerns they are becoming too reliant on counterparties.